Topic: Science and Technology- developments and their applications and effects in everyday life.
5. Cryptocurrencies present a multiplicity of risks. Discuss in detail the risks associated with crypto currencies and suggest measures that RBI has to take to prevent them. (250 words)
Reference: Live Mint
Why the question:
In March 2020, the Supreme Court set aside a circular of the Reserve Bank of India (RBI) that banned regulated entities from providing any service related to the purchase and sale of virtual currencies. It said any restraint or regulation must be exercised with proportionality and responsibility, backed by adequate empirical evidence.
Key Demand of the question:
To write about the downside of cryptocurrencies and the risk that they bring and suggest steps that RBI can take to prevent them and regulate cryptocurrencies.
Directive:
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Structure of the answer:
Introduction:
Start by defining cryptocurrencies.
Body:
In brief, mention the application of cryptocurrencies. You can use a buddle diagram as well to represent the same.
In the next part, in detail, bring out the risk that are associated with cryptocurrencies. Mention any reports that mention about the potential risks emanation from crypto currencies. Anonymity, Money Laundering, Terror financing, asymmetries of information, not backed by tangible assets or other securities, market manipulation, hacking, firesales and risk of bankruptcy etc. Mention reports, facts and figures to substantiate your points.
In the last part of the body, mention the steps RBI can take to address the above risks in order to regulate cryptocurrencies. development of crypto products in a controlled environment, build regulatory and supervisory capacity, public discussion, engage industry players and mine the potential of regulatory technology etc.
Conclusion:
Conclude with a way forward which ensures the development of cryptocurrencies in a regulated environment.
